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Post Qualification Course in International Trade Laws & WTO Economic Offences : Central Excise Law.

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Presentation on theme: "Post Qualification Course in International Trade Laws & WTO Economic Offences : Central Excise Law."— Presentation transcript:

1 Post Qualification Course in International Trade Laws & WTO Economic Offences : Central Excise Law

2 Tax – Price for Civilized Society Tax is the price which we pay for a civilized society –-Justice Holmes US Supreme Court

3 Direct & Indirect Taxes Tax Collection (2004 – 05) Union Excise Duty -Rs.1,04,1999 crore Customs Duty – Rs. 54,250 crore Income Tax & Corporate Tax – Rs.1,39,365 crore

4 Offences – Causes –Central Excise Duty is an indirect tax –Result - Entrusted to Subordinate Management

5 Offences – Causes II Indirect taxes are regressive Are they? CE Duty is a kind of expenditure tax

6 Offences – Causes III High tax rates induce temptation to evade To sell cheap & break barriers (Anti dumping duty example) To enjoy unjust enrichment.

7 Minimal Control Necessary But economic progress calls for industrial development Industrial development requires liberalised environment

8 Liberalization: CE Law & Procedure 1968 – Introduction of SRP 1986 – Modvat ( 2000 – cenvat) 1992 – One time registration 1994 – Modvat on capital goods –Invoice by Dealers

9 Liberalization: CE Law & Procedure 1996 : Mandatory penalty for evasion 1999 : Rationalisation of tax rates 2000 : Abolition of Statutory records –Reliance on private records

10 Liberalization: CE Law & Procedure 2001: New Central Excise Rates 2004 : Integration of Cenvat credit of CE duty & ST

11 Liberalization : CE Law Procedure 10 September 2004 Cenvat Credit Rules 2004 –Compounding of offences. –Duty liability from successor in business –Maximum 3 adjournments –Increase in fee for appeals

12 Liberalization : CE Law & Procedure –Audit under section 14 A & 14AA –Excise Audit – 2000

13 Excise Audit 2000 Selective audit – unit & frequency based on risk assessment Audit preceded by Desk Review Specific audit duration: Duty > 5 crore - 7 days Duty 1 – 5 crore – 5 days Duty 0.5 – 1 crore – 4 days Duty 0.1 – 0.5 crore – 3 days Duty < 0.1 crore – 2 days

14 Why CAs Should Study Economic Offences –Certification role –Tax Auditor role –Advisory role

15 Certification Role – Examples –Inventory »GSM case » Excess stock - not clandestine removal –Credit records –Disclosures –Suits involving audit certificates –Call as witness

16 Tax Auditor Role Waste and scrap is practically treated as final product for excise purpose There are about 85 entries of waste in CETA Waste & scrap - importance

17 Case Study on Waste & Scrap Activated clay is used for refining & bleaching edible oil. The spent earth is subsequently sold. It is specified in the tariff. Offence case was made for failure to pay daily. Discuss.

18 Waste & Scrap Mention in CETA Marketable commodity (spent nickel) There should be manufacture Ancillary process is not manufacture (Cinder)

19 Offences vs. Activism Thorough knowledge essential to guard against overzealousness

20 Offences vs. Technology Computer assembly is not manufacture Triveni Engineering – Marketability test – goods as such No duty on immovable property No duty in case of dismantling Removal without dismantling attracts duty Turnkey project not dutiable but components, if marketable.

21 Offences vs Technology Computer assembly is manufacture Information supplied by e-mail Software is goods for ST & Octroi; but is software manufactured? Recording of cassette is manufacture Receiving cassette and recording music as per choice is service activity Packing of CD, pan masala etc.

22 Important Concepts Manufacturer Job Worker Hired Labourer Master-Servant relationship Owner of Raw material Brand name owner Manufacturer should not be dummy

23 Basic Procedures Registration vs. exemption (> 40 / 100 lakh) Daily stock register (R 10) for goods manufactured, cleared & in stock. Form not prescribed Nil entry- when entry – QC & packing Clearance under invoice duly authenticated Triplicate / Additional copy – proforma invoice

24 Basic procedure Monthly return in ER 1 Quarterly return by SSI in ER3 Monthly return by EOU in ER2 ER4 by assessee paying duty > 1 crore

25 Basic procedure W.e.f. 25.11.2004 information about principal input in ER5 by 30 th April First return by 31 st December, 2004 Changes within 15 days in ER5 Only for specific tariff heading and by assessees paying duty > 1 crore Monthly return of receipt and consumption of principle input in ER6

26 Basic procedure Submission of list of records maintained for purchase, receipt, sale or delivery of goods including inputs and capital goods Changes in boundary, management etc. to be intimated in EA 1.

27 Cenvat Offences If cenvat wrongly taken or availed, interest is payable. (R 14) (S 11 A & B) Interest for wrong utilization - appears valid Interest for wrong availment – debatable Taking – attempting to commit offence Utilising – committing offence

28 Cenvat Offences Penalty for taking wrongly cenvat credit (R 15) Not ensuring inputs suffered duty Contravention to Cenvat Credit Rules Penalty – confiscation on goods + monetary penalty (limited to duty or Rs.10,000/- whichever is high.

29 Cenvat Offences Penalty in case of fraud, etc. (S 11/ R 15) Mandatory penalty – equal to duty 25% reduction in penalty for prompt payment For service tax – mandatory minimum penalty = duty; maximum is twice duty.

30 Offences – SSI Units Common office, common partners No financial flow back No common funding One unit belongs to FIL; another DIL; both under SIL; no common funding or financial flow back One unit belongs to husband; another to wife; both managed by husband under POA Other facts of case to be seen

31 Payment under protest Refund possible when payment under PLA Refund not possible when payment through cenvat credit No provision for cash refund of cenvat credit except for exports and other cases of departmental lapses.

32 SCN & Time Limit SCN for normal cases - one year SCN for fraud – five years Time limit valid even when there is interim stay SCN needed even if party admitted liability Mere letter is not SCN Mere endorsement is not SCN No SCN - No Penalty

33 Suppression, Misstatement or Fraud Conscious withholding not mere in action No suppression, if no disclosure requirement When facts disclosed, fraud cannot be alleged. No suppression, if department knows the facts.

34 Important Factors Demand on fuel consumption basis is arbitrary. Demand without reckoning wastage is unsustainable. Raw material shortage is inadequate for clandestine removal. False statement to bank etc. cannot prove suppression of production. Demand on private slips basis without corroborative evidence not valid

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